Protectionism Wars, Here We Come!
Daily Pfennig

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In This Issue..

* Currencies back off gains...              
* Administration slaps tariff on China...           
* And Yen rallies...                                 
* Quotes from Davos...                                                                          

And Now... Today's Pfennig!

Protectionism Wars, Here We Come!                          

Good day... And a Marvelous Monday to you! I hope your weekend was grand... I was supposed to be traveling back from Williamsburg today, so this is a bonus day for you all! HA! On Friday morning, I told the early arrivers that the currencies were strong, Gold was strong, it was all good, and we needed to close up shop and go home, because it wasn't going to get an better than that, and that the rest of the day had nothing but disappointment risk! Boy did I nail that one on the head!  Let's get to the goings on.

The currencies added to their gains during the Friday morning, only to see them give the gains back later in the day, as the "boys" in NY all closed shop and headed to the Hamptons. I checked the markets last night before going to bed, and they were trading very close to Friday's close as they are still this morning.

The one currency to buck the trend, and remain hot as a fire-cracker, is the Japanese yen... Not that it had any fundamental reason to do so, but that didn't matter, as yen bulls looked around and found something to hang their hats on.

The news that pushed yen higher came from the U.S. where the Administration announced a tariff on Chinese tires... Passenger and light truck tires to be exact... This really heats up the trade protectionism between the U.S. and China, folks... And... If China and the U.S. are going to be battling it out on the Trade Protectionism front, the Japanese yen would look to be the "better bet" in Asia...

If you all recall, a couple of months ago I told you that protectionism was going to become the "thing to do"... At that time, I really thought that countries would use their currencies as bargaining tools, in trade... But leave it to the U.S. to pull a rabbit out of the protectionism hat...

You know... Back in 2001, the then President Bush, slapped a tariff on Chinese steel... And I remember telling everyone that would listen to me that this would be the Big Shift in the strong dollar trend that existed then... I was credited with calling the secular shift of the dollar to a weak dollar trend. Now, we have this tariff... What do you think this will do to U.S. / China relations? YIKES!

You know... If the U.S. Trade Commission was really concerned about the shipments of tires to the U.S. and what they felt to be a displacing of thousands of jobs, why then didn't the Trade Commission work with the U.S. tire companies and work out a price adjustment? Ahhh, grasshopper, that would be too difficult to do! It's far easier to slap tariffs on the one country that has bought your debt year after year, without batting an eye...

OK... So, could this new tariff be the juice that moves the dollar to the next big leg down? It very well could, but it won't happen overnight, folks... These things need to work themselves through... Just like in 2001, it took several months before the dollar really began a strong downward trend... But, keep this in the memory bank...

Oh... And China, feeling that they had to retaliate... Announced a probe of U.S. auto, and chicken imports... See how this works folks? If you get this going really heated, it could spread throughout the globe, and push all the hard work to get out of the global recession into the dumpster! This is plain stupid! And our Gov't should have known better!

Well... We had our first bank casualty from the Commercial Real Estate meltdown... Corus Bank in Chicago, is the second largest bank to fail this year, and will cost the government between $1.5 Billion and $2.4 Billion in losses, depending on the performance of the bank's outstanding loans.

Speaking of Gov't losses... I saw some math on the Cars for Clunkers program... Don't believe what the Gov't tells you that it was a success... Unless of course they are talking about successfully spending Billions!

OK... Lets get off this Gov't stuff, they give me a big rash anyway!

At this time every year, economists meet in Davos, Switzerland, and normally you can get a few thoughts that remind everyone about "what's really going on in the world"... And this year was no exception... The Big Boss, Frank Trotter, was kind enough to send a few of those thoughts to me this weekend...

First off, one of my fave economists, Stephen Roach, had this to say... "The American consumer is dead and this is a wake up call for the Chinese & Asian export industry."

Then we had a guy from China that's a "think tank" guy... His name is Yu Yongding, and he had this to say... "I have tremendous doubts about US households to finance the budget deficit." and... "Why are people still so confident in the strength of the dollar? It's a myth!"

And then there was this... Remember the talks I've had with you regarding the IMF wanting to issue their own "global currency"? Well... Zhu Min Bank of China had this to say...  "IMF should provide stable reserve currency regardless of format. Very volatile reserve currency is difficult for Asia."

The Wall Street Journal had a good story regarding the weak dollar this weekend... Let's check it out... WSJ... "The dollar could continue its weeklong decline this week, especially if data on U.S. retail sales show improvement. The dollar hit a nine-month low last week against the euro and a seven-month low against the yen. Investors are moving into higher-yielding currencies such as the yen as the global economic picture brightens."

Sounds as if the WSJ writer is a Pfennig reader, eh?

Since the WSJ brought up Retail Sales, we might as well go to the data cupboard to see what's up this week... The cupboard is empty today... But tomorrow it will yield the stupid PPI report, along with Retail Sales for August, which are expected to be stronger, based on the Cars for Clunkers program which ended in August. We would have normally seen the August Retail Sales report to be stronger anyway, given the "back to school" purchases... The Butler Household Index (BHI) tells me that besides Cars for Clunkers we would see a jump...

On Friday last week, we saw the U. of Michigan Consumer Confidence report jump 5 figures to 70.2, and the Monthly Budget Deficit print at $111.4 Billion, not as bad as forecast, but still, not good in any stretch of the imagination, folks!

The Bank of International Settlements (BIS), issued a report yesterday that said the BIS expects longer-term bond yields to increase on the Swelling Budget Concern...

OK... Let me explain what they are talking about... As the Budget Deficit grows, we have to issue more bonds (our debt) to finance the deficit... The BIS believe, like I have said for some time now that eventually, the buyers of these bonds are going to require the yields to be more attractive... And as yields grow higher, the losses in these bonds grow wider for the holders...

Commodities have sold off since Friday morning, and that hurts the Commodity currencies... Oil, which was up to $72, is back to $68 this morning, as it was reported that "demand was slowing"... Hmmm, not when it comes to filling my gas tank! HA! Especially when I had to turn around and drive 45 minutes home to get Alex's cleats for his football game Saturday, and get back in time for the game! Sorry, my fat fingers just started typing that and I couldn't stop them!

That's about all I can talk about today regarding the currencies and economies... I do have to say before I head to the recap and Big Finish, that thanks to Chris Gaffney, I can now see the TV! We used to have this old TV in the office, and the picture on it had gotten so bad I couldn't see much... But Chris brought in an extra TV from home, and WOW! It's amazing! And the best part is now I can see Robin Meade better! HA!

OK, to recap... The Currencies gave back some ground Friday afternoon, but remain at those levels this morning. Japanese yen is stronger on the news of a protectionism war between the U.S. and China, as the U.S. administration slapped a tariff of Chinese tires. The annual meeting in Davos is going on, and Retail Sales tomorrow is important data for this week.

Currencies today 9/14/09: A$.8580, kiwi .6995, C$ .9185, euro 1.4550, sterling 1.6545, Swiss .9615, rand 7.5120, krone 5.97, SEK 7.0550, forint 188.50, zloty 2.90, koruna 17.5375, RUB 30.85, yen 90.60, sing 1.4250, HKD 7.75, INR 48.75, China 6.8290, pesos 13.46, BRL 1.83, dollar index 76.95, Oil $68.53, 10-year 3.35%, Silver $16.42, and Gold... $997

That's it for today... A tough weekend for my beloved Cardinals... The umpires robbed them on Friday night, they game up a game on Saturday, and failed to show up for yesterday's game, leading to a sweep by the Braves! YIKES! Is it time to start worrying? My little buddy Alex and his football team had a strong victory on Saturday, and my beloved Missouri Tigers showed up for the 4th QTR to win... Saturday night, was our little river town's Musical Sunset in the park, with fireworks... Neighbor friends all around... Little Delaney Grace wasn't impressed with the fireworks, as she nearly fell asleep during them! A full week ahead, so I had better get to working on getting ahead! Thanks for your time today, till next time... I hope you have a Marvelous Monday!

Chuck Butler
EverBank World Markets

Posted 09-14-2009 9:30 AM by Chuck Butler